Bloomberg News

BOSTON - Thomas H. Lee & Co. will raise $5.5 billion for a new buyout fund, falling short of the $6 billion that would have made it the biggest such investment pool, according to people familiar with the matter.

Though investors expected the firm to amass the largest private-equity fund, topping Kohlberg Kravis Roberts Inc.'s 1996 effort, competition from rivals such as Hicks Muse Tate & Furst Inc. diverted money from pension funds and endowments.

Lee turned to Putnam Investments, the fourth-largest mutual fund company and its partner in a venture to attract money from wealthy individuals, to help establish the second-biggest buyout fund. Putnam channeled investments from its clients in increments of $250,000. Previously, Lee's minimum was $10 million.

Raising money has been "tough," said Lawrence J. Lasser, chief executive officer of Putnam, in an interview.

Lee's is just one of the slew of multibillion dollar funds being raised. At least 86 firms are seeking almost $90 billion. Twenty-six of those are looking for more than $1 billion each - scale that could make it harder for the funds to generate the returns that have stoked investor demand.

Thomas H. Lee, chief executive of the firm that bears his name, declined to comment, citing federal rules prohibiting private equity firms from advertising unregistered securities.

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